While many business professionals say the kiss of death is the inability to sustain growth, the over-diversification of a company can also be a death nail. Diversification without time, money and employees can stall a company's growth. Too many companies fail because of one simple reason; They try to do too many things instead of focusing one or two products or product lines and making that product the best it can be.
Don’t get me wrong, I think offering a lot of products is great. Diversification, both horizontally and vertically, is something a company should strive for as it creates jobs, cuts cost and increases profit. But this should be done once a company has created and perfected their niche product.
For example, it took Ray Kroc nearly fifteen years to add the Big Mac to the McDonalds menu. Until that time, it was hamburgers, cheeseburgers, fries, sodas and milkshakes. Twenty billion or so customers served later, McDonalds is one of the most recognized brands and best business models in the world. I believe this is because they decided that instead of creating new companies or expanding too fast, they laid out their simple plan and executed that simple plan to perfection.
Build one brand, unite the company in one vision instead of breaking into separate companies, separate divisions. I have seen this more than once in companies that I have worked for. And they fail dramatically. They waste resources, employees and worst of all, time. Jobs are lost, investors are lost, all because the primary vision for the company was lost. It is time that can better be used defining one product, creating that product and selling it with all hands on deck.
If your company ever gets into this situation of over-diversification, ask yourself to revisit the reason you got into the business to begin with.
Was it to create ninety brands of ketchup or one amazing brand? Was it to create a company that simply served corporate travel clients or did you want to start your own wholesale travel company with thousands of clients with only one agent?
So ask yourself if you have a company ready and profitable before you add more and more. If you need investors to make that move possible, maybe wait a few years and save enough to pay for it yourself. Diversification is great, if you can sustain it.
